06.04.07

Why does odds which are statistically worse, normally called “better”?

Posted in Gambling at 20:17 by dalore

I recently got emailed this question:

If 1:1 odds are “even odds,” it means that your horse has a 1-in-2 chance of
winning. 4:1 odds are the odds when your horse has a 1-in-5 chance of
winning. In popular culture/common usage, this would be worse than even
odds. Is the usage of the terms “better than even” and “worse than even”
different in gambling?

Most people make the classic mistake of thinking the odds on display are the odds that horse (or animal/event) will win. When in reality it’s the odds that the bookie will pay out on, which has a small correlation to, but it isn’t, the odds of the horse winning.

Now to explain why “better” means the way it is look at it from a gamblers perspective (rather then a statistician). (Using the odds provided above) If I was to put down £10 and the odds were 1:1 (evens), I would win a profit of £10. Now if the same horse was paying 4:1 (5-to-1) and it came in, I would win a profit of £40. From this, one can easily see why one is “better” then the other, it is because you win more money, which is why you made the bet in the first place.

As more people bet on a particular horse, a bookmaker moves the odds as to cover his books (so he pays out less if it does win). Now if the odds were representative of a probability, then they souldn’t move at all (baring some accident to the horse). This shows clearly that bookmaker odds have nothing to do with the chance of a horse winning (which in it self, would be a very difficult thing to measure), but entirely on a combination of how many people the bookmaker thinks will take this bet, and opposing bets (and a bit of profit for themselves).

All though back to the small correlation I mentioned earlier, what tends to happen in a free market is that the odds of paying tend to drift towards the true probability odds (or more likely a global perception of the true odds), as more and more people make a bet, influencing the setting of the odds. This is the free market in action, a giant supercomputer (a living, giant computer with us as the circuits) that can calculate a true probabilty that would in otherwise be very difficult to calculate. Let’s just hope there is no interstellar bypass that needs to be built

So continuing the lesson, to make money at gambling, it’s NOT about picking the winner (all though that helps), it’s all about the relationship of the true odds to the payout odds. If you can consistently make bets where the odds of paying out are better (pay out more), then the true odds of the event, then over time (in theory) you will come out ahead. The way to do this is to know more then the bookmaker.

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